Buying Logic: Back to the Future

LET'S TAKE A TRIP BACK to the future for a glimpse at the MRO market in 2018. The purchasing professional in 2018 will be part of a much different environment.
Certainly the fleet is bigger and more is spent on MRO than in 2008. The fleet is 28,000 aircraft, an increase of 9,000 since 2008, and the A320 family and 737NGs make up nearly half of it.
Airlines are spending $61 billion on MRO, up from $45 billion in 2008. Engine MRO alone exceeds $22 billion.

LET'S TAKE A TRIP BACK to the future for a glimpse at the MRO market in 2018. The purchasing professional in 2018 will be part of a much different environment.

Certainly the fleet is bigger and more is spent on MRO than in 2008. The fleet is 28,000 aircraft, an increase of 9,000 since 2008, and the A320 family and 737NGs make up nearly half of it. Airlines are spending $61 billion on MRO, up from $45 billion in 2008. Engine MRO alone exceeds $22 billion.

There have been some fundamental changes in the market as well. In North America, there are only four majors and each of them has spun off their MRO operations as independent businesses. Two major MRO integrators have emerged in North America including American Airlines' former technical operations. And heavy maintenance work has continued to migrate to low-cost regions as Latin America has increased its importance by becoming a destination for widebody maintenance as well as the narrowbody work performed in 2008.

Europe's overcrowded low-fare carrier market has consolidated, with only 15 of the 45 LFCs from 2008 surviving in 2018. The move to spin off MRO operations has not been limited to North America. The most noteworthy in Europe has been Air France KLM's joint MRO operations.

To the south, led by Mubadala and Dubai Aerospace, the UAE has established itself as an aviation/MRO hub. To the east, Korea has become an MRO hub for engines and components and Malaysia has established a presence in the airframe heavy maintenance market. China's fleet has tripled to 3,000 aircraft, absorbing much of the maintenance capacity built there before 2010.

Overall, maintenance outsourcing also has increased significantly, growing from 52% in 2008 to 73% in 2018. Engine overhaul and components remain the market segments with the greatest outsourcing, sending 90% and 85% of the work respectively to outside suppliers. Interestingly, though, outsourcing line maintenance has become much more commonplace as many airlines have recognized that line maintenance can be performed more efficiently and effectively by independent suppliers who pool their resources across multiple customers. As a result, outsourcing of line maintenance has risen by a factor of 2.5, from 12% in 2008 to 30% in 2018.

With the increase in outsourcing, market shares in each of the segments have shifted. In engine overhaul, OEMs have shifted to licensed service centers to capture market share and contain the PMA threat, increasing their share to 50%. As former airline shops join their ranks, independents also have gained share, increasing from 13% to 20% since 2008.

The airframe market has seen an even more dramatic shift to outsourcing and independents have been the primary beneficiary, gaining 30 points to reach a 50% share. Although still small, one of the biggest surprises is the increased OEM presence in the airframe market. In 2008, the only OEM presence was through Bombardier and Embraer. Now, in 2018, OEMs have increased their share to 5% of the market by leveraging integrated MRO offerings. And more growth is coming as Boeing and Airbus have half of their new narrowbody orders under integrated support contracts.

The greatest impact to the component MRO market has been the increased popularity of integrated component MRO offerings. Five to six integrators now control much of the market and OEMs, who cannot offer the breadth of the integrators, have lost 5 points of their share, now controlling only 35% of the market.

Finally, independents are the biggest winners in the line maintenance market. Growth in outsourcing and an expanded presence by ground handling companies has lifted their share from only 6% in 2008 to 20% in 2018.

So the market is quite different in 2018. Airlines are buying more integrated solutions rather than spare parts or repairs. And they are buying them from a shifting mix of suppliers. But overall these changes are good for airlines as the markets are becoming more efficient and unit costs for MRO are coming down.

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